A Bond That Pays Interest Annually Yields an 8

question 123

Multiple Choice

A bond that pays interest annually yields an 8.5% rate of return. The inflation rate for the same period is 4.6%. What is the actual real rate of return on this bond?

• A) 3.68%
• B) 3.73%
• C) 3.86%
• D) 3.90%
• E) 3.94%

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Definitions:

Bidders

Individuals or entities that offer a price for goods, services, or assets in an auction or tender process, competing to make the purchase.

Bid-rigging

An illicit agreement between parties to fix the outcome of a bidding process to benefit at least one of the participants.

Cartels

Associations of independent businesses formed to regulate production, pricing, and marketing of goods to restrict competition.

Auctions

Auction systems in which products or services are offered to the person who presents the highest offer.